The objective of this study was to use instrumental variable (IV) analyses to evaluate the clinical effectiveness of percutaneous stent revascularization versus bypass surgery in the treatment of peripheral artery disease (PAD) among type 2 diabetic patients. Type 2 diabetic patients who received peripheral artery bypass surgery (n = 5,652) or stent revascularization (n = 659) for lower extremity arterial stenosis between 2000 and 2007 were identified from the Taiwan National Health Insurance claims database. Patients were followed from the date of index hospitalization for 2 years for lower-extremity amputation, revascularization, and hospitalization for medical treatment. Analysis using treatment year, patients' monthly income level, and regional difference as IVs were conducted to reduce unobserved treatment selection bias. The crude analysis showed a statistically significant risk reduction in favor of stent placement in lower extremity amputation and in the composite endpoint of amputation, revascularization, or hospitalization for medical treatment. However, peripheral artery stent revascularization and bypass surgery had similar risk of lower limb amputation and composite endpoints in the analyses using calendar year or patients' monthly income level as IVs. These two treatment modalities had similar risk of lower limb amputation among DM patients with PAD.